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Credit Rating: Baa1 / BBB+ / BBB+
Siam Commercial Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Region: Thailand
- Bond: SCBTB 3.9 24
- Indicative Yield-to-Maturity (YTM): 5.573% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa1 / BBB+ / BBB+
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Fundamental View
AS OF 23 Feb 2023Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank with a good mix of retail, corporate and SME businesses. It targets to maintain margins by growing personal unsecured lending.
SCB’s capital buffer is strong with a CET1 ratio of 17.7% at the Holdco (SCBX) level and 15.5% at the Bank level at Dec-22. It announced a major business overhaul in September 2021 to establish a new parent company called SCBX to segregate the group’s core banking services from its new fintech and digital platform businesses and to enable greater flexibility and independence.
Business Description
AS OF 23 Feb 2023- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.35% owned by the King of Thailand, and a further 23.10% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 36% corporate, 17% SME, and 47% retail as of end-Dec 2022.
Risk & Catalysts
AS OF 23 Feb 2023The bank’s new strategic direction is sensible given limited domestic growth opportunities. However, it comes with execution risk since the fintech and platform space are new to SCB. The bank, being the cash cow within the group, may have to commit more capital further down the line, posing mild pressure on the group’s capital in the near to medium term.
Risks from prolonged forbearance measures and high household debt remain for the Thai banks, but our view on asset quality and margin pressure is more sanguine now as China’s earlier than expected reopening brightens the outlook for Thai tourism and overall growth this year, which in turn bodes well for consumer and SME health.
SCB has a fairly large COVID restructured book still compared to its peers, but asset quality of this book may also trump the others as a third (~THB 100 bn) of the exposures are accounts in the hospitality sector which would be poised to benefit from China’s reopening.
Key Metrics
AS OF 23 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 2.50% | 2.63% | 2.58% | 3.11% | 2.37% |
| ROA | 1.1% | 1.1% | 0.9% | 1.3% | 1.3% |
| ROE | 8.3% | 8.4% | 6.7% | 10.4% | 10.8% |
| Equity/Assets | 13.5% | 13.4% | 12.6% | 13.5% | 12.0% |
| CET1 Ratio | 17.7% | 17.6% | 17.2% | 17.0% | 15.1% |
| Reported NPL ratio | 3.34% | 3.79% | 3.68% | 3.41% | 2.85% |
| Provisions/Loans | 1.45% | 1.84% | 2.14% | 1.70% | 1.15% |
| Gross LDR | 93% | 93% | 93% | 98% | 99% |
CreditSights View
AS OF 09 Jun 2023SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was disappointing. It still has the largest proportion of loans under COVID relief. About a third are to tourism related corporates which are expected to trend well this year, while ~42% are to retail where some slippage is likely to result from a meaningful interest step-up next year. It created a new HoldCo structure in 2022 to shift digital units and unsecured retail loans outside the bank, and has pledged to maintain a >16% CET1 ratio at the bank unit. The BOT has also ringfenced the bank against the non-bank units which further reduces the risk for the SCBTB bonds. Improved Thai economic growth this year from a good tourism recovery is also a tailwind.
Recommendation Reviewed: June 09, 2023
Recommendation Changed: January 25, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 5.40%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa1 / BBB+ / BBB+
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Fundamental View
AS OF 27 Feb 2023- Kasikornbank (KBank; Baa1(stb)/BBB(stb)/BBB(stb)) is a sound and historically profitable bank, partly supported by its SME book.
- Margins are good as a result of its strong SME franchise, though NIMs have been steadily falling over the past 5 years as a result of strong competition and the bank’s efforts to diversify its exposure to a more balanced mix across the segments.
- Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in Q4 of 2022, and some uncertainty to KBank’s asset quality trajectory remains in FY23.
Business Description
AS OF 23 Feb 2023- Kbank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-Sep 2022, the bank's loan mix by segment consists of 35% corporate, 32% SME, 28% retail and 5% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 27 Feb 2023- Worries over the SME segment typically finds KBank in the limelight given its SME focus. However, we expect support measures for SMEs to remain in place until the economy is back on a stable footing, given the importance of SMEs to the Thai economy.
- Risks from prolonged forbearance measures and high household debt remain for the Thai banks, but our view on asset quality and margin pressure is more sanguine now as China’s earlier than expected reopening brightens the outlook for Thai tourism and overall growth this year, which in turn bodes well for consumer and SME health.
- However, KBank’s asset quality trajectory is uncertain as management undertook a surprise sizable balance sheet cleanup in 4Q22 that led to credit costs exceeding guidance, and will continue with further cleanup efforts in 2023.
Key Metrics
AS OF 23 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 2.36% | 2.38% | 2.44% | 2.72% | 2.88% |
| ROA | 0.86% | 0.98% | 0.85% | 1.20% | 1.27% |
| ROAE | 7.3% | 8.3% | 7.0% | 9.9% | 10.6% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.8% | 13.2% |
| CET1 Ratio | 15.9% | 15.5% | 15.5% | 16.2% | 15.9% |
| Gross NPL ratio | 3.19% | 3.76% | 3.93% | 3.65% | 3.34% |
| Provisions / Loans | 2.11% | 1.73% | 2.05% | 1.74% | 1.75% |
| Gross LDR | 91% | 93% | 96% | 97% | 96% |
CreditSights View
AS OF 09 Jun 2023Kasikornbank is the 2nd largest bank in Thailand. We were cautious about the one third of its loan book to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. Cleanups are to be undertaken throughout 2023, but progress is on track with the FY23 credit cost guidance per the bank in May, though a corporate account deterioration in 1Q23 may lead to ~10 bp of additions. Improved Thai economic growth this year would help to mitigate AQ and NIM pressure. The KBANK 28 senior is trading 20 bp wide of Thai peers which we think broadly captures the AQ related uncertainty. We thus move KBANK to M/P from U/P.
Recommendation Reviewed: June 09, 2023
Recommendation Changed: June 09, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India